Comments on: Don’t I Lose Tax Benefits If I Pay Off My Mortgage Early?

By: Me

Me — Sun, 28 Nov 2010 09:21:02 +0000

There is no such thing as a GUARANTEED 10% return investment for one year, let alone over a period of 15 or 30 years. PERIOD! Well, if you invested with Bernie Madoff, you probably got a guaranteed 10% return investment for a year or two, but you know how it’ll end up in 15 or 30 years. The only guaranteed return investments are savings and CDs. It’s a fact that mortgage rates are ALWAYS higher than savings and CDs’ rates. So paying off your house immediately if you can is always a plus. Now if a person knows he or she can always outsmart the Bernie Madoff types, then by all means, maintain a mortgage and make that money. For the rest of us, who always end up getting screwed by crooks (and our governments), don’t let that “tax incentives” or the pipe dreams of 10% return investment bite you in the asses.

By: Michael

Michael — Wed, 08 Sep 2010 06:23:43 +0000

@Cal

You make some good points here, and I have considered these same types of issues as I’ve determined how much money to put towards paying of my mortgage early. They are worth considering, and I will likely spend more time on them in a future post.

However, I don’t think I have missed any points central to the purpose of this post, which is to demonstrate that the oft-stated and little understood arguments about the value of tax benefits relative to buying a home or paying off your mortgage early are generally incorrect. There may be reasons for buying a home, but the tax deduction benefit is not sufficient to factor heavily into that decision (if you can’t afford the taxes you pay before buying a home, you probably can’t afford the mortgage). There may be reasons for not paying off your mortgage early or at all, but the mortgage interest tax deduction should not be one of those reasons.

Regarding your final paragraph, I don’t think it accurately reflects my intent for this blog. I support investing–depending on what kind–and think that you won’t have “peace of mind” without it. This particular post comes from talking to people and noticing that it is relatively common for people to talk about the mortgage interest tax deduction as akin to investing, because they are “saving” all this money. The tax deduction somewhat of an added bonus for those with mortgages, but I’m sure we both agree that it’s not going to make anybody wealthy. For that reason, I don’t want to see anybody using that particular argument for hanging on to a mortgage or entering into one.

By: Cal

Cal — Wed, 28 Jul 2010 04:31:03 +0000

Of course, it is not wise to spend $6,500 to obtain $1,400. The points you are missing in this simple analysis are the lost investment opportunity and time value of money. If you have a low interest rate (as are available today), such as 4.5%, then the question becomes “can you invest the money that you would use to pay-off your mortgage early for a greater return?” If you can invest at a 10% return, for example, then you get the 5.5% gain plus the tax benefit. Also, recognize that the money you are paying for your mortgage is with future lower value dollars (time value of money, inflation takes its toll). Inflation figures average around 3.5 to 4%.

I’ve heard people make the discipline argument (that most people won’t invest), but if you use that same discipline that helps you make those prepayments, you’re better off.

If you don’t want to learn to invest, then that is your choice, but don’t try to convince others that the “peace of mind” is worth the trade-off of a better financial future.